Sell Or Die!

What's a Loan Modification?

A loan modification is when a lender agrees to lower the interest rate or the monthly payment (and sometimes both) on an existing mortgage.  When a borrower is behind on their payments, a lender will consider doing a loan modification as an alternative to foreclosure.

Some quick facts:

• A loan modification can be requested by the borrower, but must be approved by the mortgage lender.
• Approval is based on the borrower’s current income and monthly obligations and not on the borrower’s credit score.
• Though more difficult, when a borrower is current on their payments, a lender may consider a loan modification because of a documented hardship, such as job loss or large unexpected medical bills.

What is a Short Sale?

Imagine you have a $230,000 mortgage on your house.  You need to sell, but the best offer you've received has been for $210,000.  If you wanted to sell at this price, you'd need to bring $20K to the closing, which you can't do.  But...

If you could convince your lender to accept $210,000 instead of $230,000 to pay off your mortgage, you could then sell your home for $210K without having to bring money to the closing.  That’s called a short sale: When a lender accepts less than what is owed as a mortgage payoff so that you can sell your house for today’s value.

Lenders are approving short sales every day.  Why? It’s not benevolence.  It’s because banks have determined it’s in their best interest – it just so happens that you benefit when they do. 

Here’s how the lender sees it: Taking a relatively small loss now is better than the real possibility of taking a huge loss later.  If you gave up on selling your house and let it go to foreclosure, for instance, the lender could lose far more.

What is Negative Equity?

When a homeowner owes more on their mortgage than what the home is worth, the home is referred to as “upside down.”  The amount of the mortgage over and above the value of the home is called negative equity.

Why is negative equity so important these days?

Let's say you are selling a home that is worth $175,000 with a mortgage balance of $200,000.  You owe more than the home is worth, to the tune of $25,000 of negative equity.  If you were able to sell this home, you'd have to bring at least $25K to the closing in order to sell your home.  That's right: You'd have to pay money to sell your own home!  And that's not counting any commissions you might owe to a real estate agent.